Reopening notice validity for alleged bogus share trading claims invalid when issued before return filing deadline; appeal allowed for assessee

Reopening notice premised on a belief of escapement of income cannot validly be issued before the expiry of the statutory return-filing date where no return exists for the year; the assessing officer lacked a lawful basis to form the requisite belief and the approving authority therefore could not validly approve reopening. The tribunal also held that Explanation 2(a) to the reopening provision makes no distinction between different modes of filing a return, so absence of a filed return defeats the formation of belief based on alleged bogus share-trading claims, and the appeal was allowed for the assessee.

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Issues: Whether the reassessment initiated by issuance of notice under section 148 dated 12/09/2016 and the approval under section 151 are valid where the reasons recorded refer to claim of exemption for long-term capital gains despite no return of income having been filed by the assessee as on the date of recording of reasons (i.e. whether the reasons recorded show non-application of mind and thus invalidate the reopening).

Analysis: The Court examined the timing and content of the reasons recorded vis-à-vis the dates of filing of the return. The record establishes that reasons for reopening were recorded on or before 12/09/2016 and notice under section 148 was issued on 12/09/2016, whereas the assessee filed a belated return under section 139(4) only on 19/09/2016. The reasons repeatedly state that the assessee had claimed exempt LTCG and that the transactions were bogus accommodation entries; however, as on the date of recording of reasons there was no return on file and therefore no claim by the assessee to which the reasons could refer. The Court found that the assessing officers reasons therefore included assertions about a claim that did not exist at that time and that the approving authority under section 151 likewise approved those reasons. The Court treated Explanation 2(a) to section 147 and the statutory scheme as not distinguishing between returns filed under section 139(1) and section 139(4) for the purpose of forming a reason to believe and concluded that a reason to believe cannot be validly formed based on a non-existent claim; the absence of a return on the date of recording demonstrates non-application of mind in forming the belief and in granting approval.

Conclusion: The Court allowed Ground No. 2, holding that the reasons recorded and the approval under section 151 are vitiated by non-application of mind because the notice under section 148 was issued and reasons recorded before the assessee had filed any return; accordingly the reopening is invalid and the appeal is allowed in favour of the assessee.

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